DEAN FOODS CO | 2013 | FY | 3


16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Certain of our subsidiaries provide health care benefits to certain retirees who are covered under specific group contracts. As defined by the specific group contract, qualified covered associates may be eligible to receive major medical insurance with deductible and co-insurance provisions subject to certain lifetime maximums.

Included in accumulated other comprehensive income at December 31, 2013 and 2012 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service costs of $742,000 ($453,000 net of tax) and $768,000 ($469,000 net of tax) and unrecognized actuarial losses of $2.3 million ($1.4 million net of tax) and $6.0 million ($3.7 million net of tax), respectively. The prior service cost and actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost during the year ended December 31, 2014 is $65,000 ($40,000 net of tax) and $75,000 ($46,000 net of tax), respectively.

 

The following table sets forth the funded status of these plans:

 

     December 31  
     2013     2012  
     (In thousands)  

Change in benefit obligation:

    

Benefit obligation at beginning of year

   $ 37,428      $ 32,508   

Service cost

     816        589   

Interest cost

     1,223        1,350   

Employee contributions

     415        466   

Actuarial (gain) loss

     (1,102     3,317   

Benefits paid

     (1,550     (2,670

Plan amendments

     —          —     

Plan curtailments

     —          —     

Other

     —          1,868   
  

 

 

   

 

 

 

Benefit obligation at end of year

     37,230        37,428   

Fair value of plan assets at end of year

     —          —     
  

 

 

   

 

 

 

Funded status

   $ (37,230   $ (37,428
  

 

 

   

 

 

 

The unfunded portion of the liability of $37.2 million at December 31, 2013 is recognized in our Consolidated Balance Sheet and includes $2.8 million classified as a current accrued postretirement liability.

A summary of our key actuarial assumptions used to determine the benefit obligation as of December 31, 2013 and 2012 follows:

 

     December 31  
     2013     2012  

Healthcare inflation:

    

Healthcare cost trend rate assumed for next year

     7.90     8.20

Rate to which the cost trend rate is assumed to decline (ultimate trend rate)

     4.50     4.50

Year of ultimate rate achievement

     2029        2029   

Weighted average discount rate

     4.64     3.38

A summary of our key actuarial assumptions used to determine net periodic benefit cost follows:

 

     Year Ended December 31  
     2013     2012     2011  

Healthcare inflation:

      

Healthcare cost trend rate assumed for next year

     8.20     8.50     8.70

Rate to which the cost trend rate is assumed to decline (ultimate trend rate)

     4.50     4.50     4.50

Year of ultimate rate achievement

     2029        2029        2029   

Weighted average discount rate

     3.38     4.34     4.68

 

     Year Ended December 31  
     2013      2012      2011  
     (In thousands)  

Components of net periodic benefit cost:

        

Service and interest cost

   $ 2,039       $ 1,939       $ 789   

Amortizations:

        

Prior service cost

     26         26         (66

Unrecognized net loss

     298         129         494   

Other

     2,286         1,868         16,012 (1) 
  

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 4,649       $ 3,962       $ 17,229   
  

 

 

    

 

 

    

 

 

 

 

(1)

This amount in 2011 represents an increase in our net periodic benefit cost for the year ended December 31, 2011 as a result of identifying groups of employees who were eligible to receive other postretirement benefits that had historically been excluded from our benefit plan valuations.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percent change in assumed health care cost trend rates would have the following effects:

 

     1-Percentage-
Point Increase
     1-Percentage-
Point Decrease
 
     (In thousands)  

Effect on total of service and interest cost components

   $ 283       $ (237

Effect on postretirement obligation

     3,775         (3,266

We expect to contribute $2.8 million to the postretirement health care plans in 2014. Estimated postretirement health care plan benefit payments for the next ten years are as follows:

 

2014

   $2.8 million

2015

   2.7 million

2016

   2.7 million

2017

   2.7 million

2018

   2.8 million

Next five years

   15.2 million

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